Harvard Business Review: Future-Proof Your Climate Strategy

“As global weather becomes more extreme, the threat that climate change poses for companies is no longer theoretical. Businesses are working to protect their assets and supply chains from increasingly severe hurricanes, heat waves, fires, and droughts. More and more companies are figuring such “climate risk” into their calculations, and investors are paying close attention. But there is a related threat that many haven’t fully taken in: carbon risk—the impact of climate-change policies on a company’s strategy and returns. As global warming worsens, companies can expect tougher government measures that will extract a growing price for their carbon emissions.

These mechanisms could sideline the unprepared. In this article we describe the approach used by more and more companies to brace for the future and even flourish in it: internal carbon pricing. At its core, this involves setting a monetary value on the company’s own emissions that reflects carbon prices outside the firm. In 2017 nearly 1,400 companies were actively using internal carbon pricing or planning to do so. As we’ll show, by putting their own price on carbon, companies can better evaluate investments, manage risk, and forge strategy…”